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Airline profits are set to reach about $36 billion in 2025, but the cost structure behind those earnings has shifted dramatically since 2019. Flight crew costs are higher, and MRO spending is expected to increase about 40% in 2025 compared with 2019, while airline capacity has risen only 10%, implying a unit cost growth of around 30%. What was once a lean, borderless and plannable MRO ecosystem is now characterized by uncertainty, restrictions and the need for redundancy.
What can we expect going forward? We must examine the key drivers.
About half of all MRO spending is on materials that have faced annual price escalations as OEMs are rebalancing their post-COVID-19 supply chain, adjusting for rising input and inventory costs and attempting to rebuild working capital now that the aftermarket is the primary profit source. Capacity investments to meet this demand will further push margin requirements upward, while tariff volatility adds another layer of cost by reducing competitive intensity and distorting market efficiency.
MRO labor rates have risen more than 30% since the COVID-19 pandemic, and annual escalations are now in the 5-7% range. The industry faces a structural technician shortage; supply will not meet demand for the foreseeable future. Moreover, next-generation aircraft require skill sets that overlap with IT as well as manufacturing roles with higher pay and better working conditions, further fueling wage inflation.
The chaotic nature of the supply chain and long turnaround times have led to the need for more buffer inventory in the system, and airline inventory values have correspondingly risen 60% since 2021, according to AeroDynamic Advisory’s analysis. Typically, every dollar of inventory costs 20 cents per year in depreciation, warehousing and insurance, and drives the need for a higher profit margin to generate the return on assets.
Trade and tariff uncertainties also will incentivize regionalization of inventories, undermining economies of scale and global liquidity of parts pools. Absent greater predictability, it is difficult to see airlines and MROs reverting to their previously lean models.
New digital traceability mandates, cybersecurity standards, and reporting and traceability requirements related to environmental, social and governance concerns—or even OEM-driven requirements for health-monitoring data and access to maintenance records—all add further costs for access and certification. These compliance requirements effectively raise the fixed and variable costs of doing business in the MRO market.
MRO now represents 10-13% of an airline’s cost structure, an increase from a decade ago. This puts airlines in a precarious position, as this increase is layered on top of supply chain turbulence and a broader climate of heightened uncertainty. As carriers design their strategies to address this, they will need to balance the competing demands of resilience versus cost.
Some airlines may in-source MRO for greater control at the risk of losing scale effects and supplier best practices. Another approach is to sign long-term agreements to secure capacity, although that risks paying a premium and putting too many eggs in one basket. A third option is to introduce more competition, whether through dual-sourcing MRO or procuring from alternative part sources, but this generates management and transactional costs as well as the burden of managing one’s own inventory. Faced with these rising cost pressures, many carriers are likely to launch a kick‑back reaction, pressing their MRO partners for price concessions and greater transparency in cost structures.
Suppliers must adapt on several fronts. The playbook might include a mixture of adding capabilities, processes and partnerships to lower material costs. Suppliers also must address the more challenging labor environment by investing in technical academies and establishing clear career paths to address shifting skill sets and retention challenges. Building internal supply chain teams and resilience measures are essential to coping with an increasingly uncertain world while also making the necessary investments in new-generation technology.
It appears that the cost of business and the barrier to entry are rising, generating a need for larger players with greater functional capabilities to act in combination with specialist players. Another wave of consolidation is a real possibility. Paradoxically, this consolidation could shrink the pool of independent providers and further erode airlines’ bargaining power, leaving carriers more dependent on a handful of large MRO players.
For decades, MRO labor and material inflation was not a core issue for airlines. That has shifted—higher costs appear to be here to stay. After decades of relative stability, the MRO sector should brace for MRO inflation.
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